Free diesel prices when inflation falls to 5%: Kaushik Basu

KOLKATA: India's chief economic advisor Kaushik Basu batted for freeing diesel prices if inflation eases to a comfortable level of around 5%. He said deregulation of diesel prices would have a sobering impact on inflation in the long run, although it could lead to short term spikes.

"I personally believe diesel prices ought to be freed before long," Basu said. "As soon as you liberalise diesel prices, you will see a short-term rise in prices across board. In the long-run, inflation will go down if you liberalise diesel prices. So, the government has to time the decision well," he said.

Basu said inflation should ease to 5% in a couple of months from now. The Cornell University professor does not expect any sustained rise in global crude prices hereon and this is one of the assumptions behind the 5% inflation projection.

The February inflation was 8.3% and Basu expects it to ease to 7% for April. "RBI measures takes six to nine months to have an impact," he said. The Reserve Bank of India has raised key policy rates eight times since March 2010 in an attempt to rein in rising prices.

Basu said the government has decided to make a conscious attempt to bring down the country's debt-GDP ratio to 65% in the next three years from a 74% level now. A lower debt-GDP ratio will help improve fiscal condition.

The economist said that though India was on a high growth trajectory, inflation and corruption were the two big clouds looming over the country. While the government was trying to bring down inflation, corruption needed to be attacked for which certain changes in bribery laws are needed, he said.